stay there. >> poised to pop. >> mike. >> up more than 9% or so. >> three seconds, steve. >> walmart. >> okay, thank you for watching fast money. "mad money" starts now. my mission is simple. to make you money. i'm here to level the playing field for all investors. i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money". i'm just trying to make you a little money. my job is not just to entertain, but actually to teach you, so call me at 1-800- 743-cnbc. you want to know the single most useless thing you can do in this business? that's easy.

the most useless thing you can do as an investor is to worry about what everyone else is worrying about. the flipside of this is also true. there is no point in getting excited about something everyone else is eagerly anticipating. why? because when the vast majority of investors agree that something is going to happen, that thing is already priced into the stock. priced in. while the real economy moves at its own pace. for example you have to borrow money to build out equipment and use that to manufacture goods and transport them to retail outlets and wait for the customer to come along and buy them. the stock market has no such limitations. stocks don't quite travel at the speed of thought, but they come close. so for mutual fund managers to decide that the economy is slowing or speeding up or flatlining, stocks start trading like that is already the case. usually it takes time to build that consensus, which is why

you rarely see these moves happening instantaneously. once the big managers are on the same page about something, you can be pretty confident it is baked in. this is basic economics 101 stuff. i don't have a ton of use for an economist as a professional on the show. they tend to take an ivory tower approach to this discipline, meeting they have all sorts of models of how it is supposed to work. often very boring models. they let the empirical facts get in the way of a good theory. if the data conflicts with a model, economists have a bad habit of throwing away the data and not the model. however as long as you keep that caveat in mind, this is incredibly useful when managing your own money. let's say something is a little bit different days the official market hypothesis. this is at any given moment stock prices already reflect the relevant information out there and with new data comes out stocks immediately adjust

to reflect the new reality. you will often hear purists cite this theory to explain why it is impossible to get any edge, because whatever you know about a company should already be baked in. basically the same as gambling. if everything you could possibly know is already priced into the stock, that means your homework is meaningless and the only thing that can push the stock higher or lower is some random new piece of information nobody knows about. it has to be something totally unknown because of anyone did know they would have act on it already, so it would be baked into the share price. that means under the extreme version of the efficient market hypothesis the only thing that can move stocks are known unknowns, to use the former parlance of donald rumsfeld. and then you might as well be playing roulette, it's more fun. that is why index funds adore the hypothesis. if you want equity exposure the only smart way to do it is

putting your money into a nice, low cost index fund. as anyone who watched the show regularly knows, i have no beef with index funds. in fact i think they are the best way for the vast majority of people to invest in the market. i've held that position since the year 2000. even if you have the time and inclination to manage your own portfolio, you should still direct a big chunk of your savings if not the plurality of it into a cheap index fund. it is the safest way to give yourself equity exposure and is perfect for your retirement accounts. it's not that easy to be an individual stock investor. it takes real work which is why we try to help if you join the cnbc investing club, but it is easy to be an index fund investor. you can gradually contribute over time with every paycheck and as long as you believe the u.s. economy can keep growing over the long haul, you can park that in n index fund and check in on it once or twice a

month. this idea that you can't possibly be the averages because of the efficient market hypothesis tells us stocks are always perfectly valued and you know what? that is totally bogus. putting aside the fact that i consistently beat the average every year at my old hedge fund and give my clients 24% compound returned versus 8% for the s&p, the simple truth is markets are not perfectly efficient. they ignore things, make mistakes and miss value information every day and that is a major reason anyone can make money picking individual stocks. these anomalies are everywhere and can be great for your portfolio. ironically free market economics is a lot like communism. it makes a lot of sense in theory but does not work in life. so why did i bring up the efficient market hypothesis in the first place? even if the most extreme form of this theory isn't true and it's not, empirically we know

that markets are all kinds of inefficient. it is still a useful idea. as an ironclad law of the universe the hypothesis can't help us, but as a rough guideline it can lead us in the right direction. they try to be efficient. when a stock spikes immediately, that kind of data is baked in very quickly. when the federal reserve changes policy, probably done raising interest rates like we saw in 2023, that gets longer to be reflected in the average. baking that in could take months. even if the fed changed course at the end of 2018, it took weeks to work in. it can take days or weeks or even months for the average to fully reflect the new normal because it takes time for portfolio managers to make a decision. no hedge or mutual fund is going to sell all at once. sooner or later we reach an equilibrium, so let me give you

the mad money version of the hypothesis called the kinda sorta markets corollary. when anything is positive or negative you have to assume that view was already being discounted by the stock market periods when everyone is euphoric about the strong job market, that is probably baked in already. when everyone is worried about a slowdown it is probably baked in. when investors are hunkered down in fear of bad earnings season, don't expect the stocks to get slammed by those numbers. people are already anticipating a disappointment. when all of the talking heads are telling you to be afraid of the same thing, that might be the one thing you don't actually need to be worried about. let everybody else worry for you. from the stock market perspective the fact that most investors believe something will happen means wall street has already treated it as a reality. yet it is so easy to fall prey when imagining your own money. emotions are infectious. when you see all sorts of experts coming on television

and sing the same thing while newspapers print similar stories and your friends echo it back to you, it is only natural to assume it must be true and you know what? very often it is true but that doesn't mean it will move stock prices. by the time we get any real consensus on an issue that move is probably over. if you want to be a better investor don't tear your hair out worrying about the same thing as everyone else. you need to worry about the things other people don't seem to care about because the real threat is the one you don't see coming. let's take questions. let's go to mary and idaho. mary. >> hi, jim, nice to talk to you again. i have a comment and a question for you. the comment is regarding when you were talking about the conventional stupidity. >> yes. >> i sent you an email on that and i hope you will have an opportunity to read it. i thought you would enjoy it. >> thank you.

>> the question is, at what percent of increase in the stock should a person consider taking some or all of their profit either to reinvest immediately or to just hold back as cash to buy something down the road? >> let's take this in the plain view that you need to sell something in order to e able to buy something. what i like to do and we talk about this in the cnbc investing club, that if there are fundamental differences from what happened when i bought it. in other words let's say i bought a stock and it has two bad quarters. that is when i want to sell. i lower a stock ranking if they miss a couple of quarters and then a boot that to buy something better. there will be times of third quarter will turn out good and i didn't get in and then i kick

myself, but what i have done is create a level of discipline and that is what you should do. let's go to dave in colorado. how are you? >> a colorado booyah to you, sir. longtime listener, first time color. thank you for all you do. side note, my mom got me investing decades ago and got me watching wall street we can review and you are carrying on the legacy. >> that's how i got involved, too, so we are in the same boat. let's go to work. >> all right, let's go to work. i'm calling on behalf of my girlfriend who is in her early 60s. she is retired with a state pension. she has an investment management firm managing $600,000 in stocks and etf's but they are charging her 1% per year. they haven't kept pace with the s&p 500 and have avoided the growth stocks almost completely. she wants to manage her money on her own. two questions, how should she construct a portfolio of her

own and over what timeframe should she make the changes? >> i would put two thirds of it in an s&p index fund. if they can't beat it, go for it and join it and one third i would structure around a portfolio of stocks in which two or three can be overweighted and large. stocks that we think are really great. cnbc investing club can help you pick those 10, because we have a portfolio of more than 30 and you just take the 10 you are more excited about and no more 1%. you are now free to move, well she is and tell her congratulations for having saved up that much money. that's terrific. the most useless thing you can do as an investor is worry about what everyone else is worried about. rather the real threat is the one you did not see coming. i am giving you my course and all of my best practices for investing. sometimes you need to take a step back and evaluate not just what you are investing in, but how. if you want to better your investments i say yes indeed

stick with cramer. >> don't miss a second of "mad money". tamra, izzy and emma... they respond to emails with phone-calls...

and they don't "circle back" they're already there. they wear business sneakers and pad their keyboards with something that makes their clickety- clacking... clickety-clackier. but no one loves logistics as much as they do. you need tamra, izzy and emma. they need a retirement plan. work with principal so we can help you with a retirement and benefits plan that's right for your team. let our expertise round out yours.

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ute -- and forcing you to follow the hedge fund heard. there are lots of different ways to invest and some take less work than others. for example there is time. buying stocks whether you are poised for a near-term bottom and selling them when they look top. then lighten up when it gets overextended on the upside. you can keep waiting for the perfect moment when the whole market sells off dramatically, giving you a chance to pick up your favorite stocks for much less than they are worth. my favorite. back in my hedge fund i love to doing this stuff. if you have the time and you need the inclination and the right resources and it is a terrific way to make money. if you have a full-time job this approach is nuts. i say this as someone with a terrifying family history of mental illness. regular people who work for a living don't have time to stare

at the tape all day. even if you work the night shift it is not a good use of your precious free time. more importantly trading this actively is not worth the agitation. that's why i come in every night to do the show. i focus on the market like a hawk so you can take a less intense approach that allows you to go to work and have a personal life. it is why we help you walk you through these things with our charitable trust when you join the cnbc investing club, would you know i want you to do. so how should you approach the market if you're not ready to devote your life to watching stocks? for starters, let me say once again that index funds are a wonderful thing. if at any point when i am describing it sounds too daunting to you or too time- consuming, please do not hesitate to say individual stocks are not for me and put most of your mad money, the cash investment that is not part of your retirement portfolio, into a low-cost index fund or etf. i said this before the break,

but that is because it is good advice. being a savvy index fund investor, let's say it is relatively easy. if you manage your portfolio well and stay disciplined, i think you can beat the s&p 500 with a diversified group of individual stocks. not everybody has that kind of time. not everybody has that temperament. not everybody is comfortable taking more risk to chase a higher return and that is fine. you have to do what is right for you. we call hat suitability. keep the index fund option in your back pocket. assuming you want to profit from individual stocks, let's talk about how you can do that without the stock market taking total control of your life. first you need to accept that the best is enemy of the good. there is no point trying to buy or sell stocks at the perfect moment. even making the attempt will drive you nuts. you need results that are good enough rather than trying to chase perfection. for example if a stock you like it's hammer down from $50 and

then goes down another couple of points before it bottoms and rebounds, please don't kick yourself for making a mistake. you didn't screw up. you made a good pick. yeah you could have made a couple extra points, but a win is a win. second, regular viewers know that i don't believe in the concept of buy and hold. meaning you need to keep researching companies after you own a piece of them and if something is terribly wrong you may have to bail. i think it is a good idea to buy stock slowly on the way down and sell them gradually on the way up. all of this requires active management. please don't feel compelled to be too active. the last thing you need is to be in and out of stocks with every gyration of the broad market. you want to be an investor, not a traitor. you think you can time things perfectly and flit in and out, but most things are concentrated in bursts, so you are likely to miss them on the sidelines. again if you have the time and inclination to trade that is

great. however, most people don't. when you have a full-time job and you are trying to manage your portfolio, you need to sit talk -- sit tight with the stocks you elieve in. there will be crazy action week to week and even on a day-to- day basis. you don't have to constantly adjust your holdings based on these moves and if you believe in the stocks you own and you shouldn't own anything you don't believe in, then you should be willing to stick with it. ideally you would be able to trade in and out, but like i told you the best is the enemy of the good. in reality everybody is panicking over the latest crisis and you will be tempted to panic, too, and sell everything. get out now. you might even avoid a substantial decline by bailing on the stock market. similarly when you need to get back in, sell high end by your favorite stocks back at a lower level. unfortunately it is really hard to nail the timing. i don't want you to do the impossible. if you dump everything there is

no guarantee you will be able to buy your stocks back before something changes and the market comes back. witness october, 2023 when it started heading lower. something almost no one saw coming, what is the solution? if you don't want a panic attack every day, keep doing your homework so you know what you own. adjuster position with a 20% move or more. you need to take something off the table. that is my limit. put that cash to work buying more shares at lower prices, but you don't have to nail every short-term top and bottom. let me give you the bottom line. to trade or not to trade, that is the question. it is nobler in the mind to suffer the slings and arrows of outrageous fortune. you don't need to be perfect in managing your money, you just need to be good enough and that means you shouldn't waste your time trying to anticipate every little gyration in the market. take a page and relax.

"mad money" is back after the break.

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the stock market talks to me and i mean that figuratively, not literally. contrary to what you may have read on x, i do not hear voices, though i think my left molar crown does indeed play music. i'm constantly getting a real on what the big money managers are up to and to do that i need to separate the signal from the noise. what do i mean? on any given day there may be monster moves on individual stocks. it is safe to assume these are all significant, but some are more meaningful than others. so when you see the stocks getting killed, for xample the natural conclusion to draw is something must be wrong with the

cloud. it is not much of a stretch to assume that the pain must be over. that is too easy. the truth is some of these moves are a signal and some of them are noise. a signal mean something. it tells you the stock will probably keep moving in the same direction. noise on the other hand is noise. to borrow my favorite line from macbeth, noise is a poor player that struts and frets his hour upon the stage and then is heard no more. it is sound and fury signifying nothing. in short while the signal carries a message, there is no real take away for noise. in another life shakespeare would've been a dynamite investor. it is as much an art as a science, so how do you tell when a major stock swing heralds something larger? you need to understand that we get major single day advances and declines with no real significance all the time. stocks get ahead of themselves, rallying too far, too fast before selling off. the term for this is overbought.

the stochastic oscillator or williams percentage oscillator named after larry williams that we talk about a lot. when something is overbought it means pretty much everybody who wanted the stock at a given level has purchased it. even the highest quality company can have an overbought stock and when you run out of buyers you almost always get a pullback, but this does not tell you anything except that the stock in question needs to take a breather. even bad stocks can rally and for similar reasons. if they get oversold because they have come down to quickly attend to get a bounce. this type of rally does not convey much information. it is noise. it is oversold, it can bounce and unless something changes it can go right back down. i bring this up because when you see dramatic swings in individual stocks, your mind will try to draw connection to the fundamentals, the real world facts about how the underlying companies actually do it.

sometimes that connection genuinely exists. other times it is noise, not a signal and you wind up feeling very foolish. those who want to know more about this can go back to the canon on stock markets and that is where i describe how easy it is to see a stock and convince yourself something is really happening underneath. it is a funny part of the book. all that means is you have more buyers or sellers at a given moment. that might be related to the actual company. by the way, this is something we are constantly walking through with the cnbc investing club . there are plenty of other reasons why a stock might explode higher or meltdown that has nothing to o with the fundamentals. sometimes the market makes a mistake and the mistake gets rolled back. maybe people misinterpret a good quarter is a bad one, something that happens quite often during earnings season because there are so many things happening at once. maybe money managers are dumping stocks purely to raise money so they can buy another.

one that is hotter. so what kind of action carries real significance? how do you know when a big move is foreshadowing something bigger down the line? all right, there is a lot of signal that is pretty obvious. analyst cuts estimates. and the stock plummets. obvious. that is just business as usual. i prefer to look for the unusual. company catches an analyst downgrade on the stock goes up, interesting signal. counterintuitive. in my experience when the stock refuses to go lower on bad news that often means it is putting in a bottom end is ready to rocket higher. great coverage and the stock it slammed, that is the type of signal i'm looking for, too. it means wall street believes this company is looking at its last great quarter. when your stock falls on positive news, you may be looking at the top. for the most part you can't decipher hidden messages in the way stocks are traded.

except in rare cases you probably should not try. it is important to know what is working and not working in a given market. you can't let your money management decisions be completely guided by what is in or out of style on the wall street fashion show, otherwise you end up owning stocks just because they are going higher and that is a terrible place to be. you won't know what to do with them once they start coming down. here is the bottom line. when you're evaluating a stock, take your cue from the fundamentals. sometimes you can extrapolate a great deal from a big move in an individual stock, but more often it is telling you something you already know or it is just noise that means nothing. let's take a call. howard in new york. howard. >> booyah, jim. this is how we from the bronx. first-time caller and club member. >> excellent. thank you. what's going on?

>> every time i visit my grandson he looks at my portfolio because he knows i'm always watching "mad money" every day. thanks to your conference calls and alert cc gains of anywhere from 60 to 200% in some of my stocks. he wants to be an investor, too. here are my questions. when do i start to tremble, how much should i trim and more importantly since i like the stocks so much and believe in them, when should i get back in? >> a great question and what happens is we believe in discipline and conviction. discipline must always trump conviction. that means if you want to start trimming 20% up, we will trim between five and 10%. if we really want to be in shape to buy some back, we must do that and that is how we play it. otherwise we let it run. ned in ohio. ned. >> professor cramer, it is good

to talk to you today, sir. how are you? >> i am good. thank you for calling in. how can i help you? >> yes sir. a couple months ago i was listening to warren buffett and he talked about high growth rate companies that eventually forge their own anchor. he said the company keeps expanding and shares keep rising. would you explain that to me and is nvidia an example of that? >> nvidia is a great example. let me tell you why. because when you look at nvidia on the estimates it always looks expensive and then it so far trumps the estimates that when you look backward it turns out the stock was selling at a remarkably low price and that has been the secret literally since 2012. incredible. it keeps doing that. please, don't put too much significance on day-to-day gyrations in the stock shareprice. you have to know when something is a signal and when it is all

sound and noise signifying nothing. much more "mad money". i'm highlighting one of the key pitfalls many investors falsely think about as an opportunity. i will explain why you should be more cautious and i'm taking your investing questions with my investing club partner, jeff marx, so stay with cramer. ♪♪

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all night i've been warning you about the dangers of being a follower. there is a good chance it won't play out as expected. it is already priced in. that is what we call priced in and that is why you need to be extra wary of the ipo cycle. let's go over this. we've seen the pattern over and over again. very few of them explode higher and at the same time they are flooding the market with a new stock supply. i've set a million times the stock market is like any other market. it is all about supply and demand. too much supply and prices are going to be lower. the problem is when ipos make people fortunes, you get a palpable sense and then when the deals start attracting less

interested turns into hostility and then the home market, not just the ipos, tends to get slammed. we've seen this happen so many times. you have this wave of ipos and mergers as people invested their government stimulus checks in the hottest stocks in the market. we had 400 ipos and another 200 mergers, which were meant to be blind companies that would make a bunch of acquisitions. in 2020 a lot of startups began to use them as a way to become public while evading strict regulations that the security and exchange commission places on ipos. initially there were exciting ones, for example zoom video. this one came public in 2019 and soared into the stratosphere in 2020 once the pandemic made the platform essential, at least during the covid era. at first you get a bunch of ideals they get people excited. we also had electric vehicle and charging station ipos. at first these stocks were unstoppable, the most of this was because it was high risk speculation where people were willing to give anything with

the right buzzwords the benefit of the doubt. mistakenly of course. reminiscent of the late 90s when anything connected with the internet was beloved until the market was flooded and the whole group collapsed. i want to give you a concrete example from a company called quantum space. in retrospect it was basically a science experiment looking to develop better batter technology for electronic vehicles. you could make a killing even in a world where electric cars have lost some of their luster, but it was a long way from having anything they could actually commercialize. even four years later these guys still didn't have any meaningful revenue. in 2020 and early 2021 wall street was still giving the benefit of the doubt to anything connected to electric vehicles. quantum came public and you have to be really skeptical of those deals. when that was announced it saw

its stock double into trading sessions. during this initial period of maximum height, no this is crazy, the stock shot up to $130. then we started seeing short- sellers coming out of the woodwork, arguing it was a scam and wall street gradually lost interest in companies with zero profitability, let alone speculative names like quantum skate. in the end the stock got obliterated to the single digits and has only been able to bounce at times. look, it is hardly alone. i don't mean to pick on it. all sorts of electric vehicle plays that came public got crushed. canoe, lien electric, lighting motors, ferriday future intelligent electric, all saw their stocks plunge more than 90% from peak to trough. many turned out to be -- well,

had some fraudulence. again, we had roughly 600 companies become public in 2021. by the second half of the deal many were blowing up in your face because we already had far too many newly minted stocks. the moment the fed starts talking about raising interest rates, the entire edifice collapsed and they spent the entirety of 2022 getting eviscerated. that is why warned you about he dangers of ipo mania in 2021. i said there was one surefire way and that was flooding it with supply. you get a supply glut in the stock market. i warned you that eventually the ipo bubble would burst and you might be left holding the bag. don't forget hundreds of low- quality companies that begin public artie went bankrupt. 2021 was just as bad. in fact you can argue it was worse because so many of these were spac mergers and that can make an overconfident forecast

that the s.e.c. would never allow in a traditional ipo. before getting excited about putting a lot of money to work in ipos, they need to raise that money by selling something else and when there are a lot of large deals, they need to sell. 2021 was different thanks to the interest-rate policy and stimulus checks from the government. that is what happens, you sell to buy. the bulk of the new money goes into index funds and they can't participate in ipos because those stocks aren't in the indices yet. in the aggregate you don't have enough cash coming in to get in on a bunch of big deals without selling. so the next time we have a big wave of upcoming initial public offerings i need you to remember that it pays to be cautious when the ipos come in hot and heavy. the bottom line, as much as i love anything that generates enthusiasm for the stock market and nothing does that like massively successful ipos,

you've got to be careful when we get a whole wave. it tends to start out strong, generally a lot of euphoria and then it burns out and all the new stock supply can really weigh on the market. please just keep in mind that concept the next time you get excited about a bunch of red- hot deals and "mad money" is back after the break.

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when you are picking stocks, you need to be very careful about doing the right thing for the wrong reasons. it happens more often than you expect. let's say you find a great company, well-managed, good dividend. you buy the company stock and it goes up. it is only natural to conclude that it is rallying for the reasons you liked in the first place. that's not always true. you might think that a win is a win, but sometimes it is more complicated. you're probably going to be confused when it goes in the opposite direction and when we are confused, guess what happens? we make lousy decisions. for example there are excellent consumer packaged goods companies.

maybe you want to buy proctor and gamble. a lot of reasons to like them. but like i told you earlier, logic is rarely what drives the stock market on a day-to-day basis. suppose you pick up proctor and gamble because you believe in management or like the dividend or believe plastic and fuel costs are going down, which will boost the company's margins. so you buy the stock and it explodes higher. what's next? you have to ask yourself -- it is easy to tell him yourself, i nailed it, this market is finally giving proctor the credit it deserves. when you buy a stock and it goes up, that means you are right. why would you second-guess yourself when you are right? the answer is simple because maybe you're just lucky. i told you before it is better to be lucky than good, but you need to be able to tell the difference. let's say you wrapped up a nice win with proctor. you should ask if you are right or you simply happen to be in the right place at the right time. what do i mean? rotation, rotation, rotation. there are times that stocks

were higher for reasons that have nothing to do with underlying companies. like all consumer packaged goods it is a recession stock because it's earnings hold up during a slowing economy. it stock roars when you get lousy economic data. if you buy the stocks because you believe in the business but then they go higher as part of a rotation that has nothing to do with the business, you still got a win. no one is going to tell you they can't take that money because they don't accept profits from rotations, but you don't want to get caught with your pants down because the market suckered you into thinking it was going up from fundamentals when basically it was the rotation. this is what i meant earlier about filtering out the signal from the noise. and it is hard to do. why? because there is something called confirmation bias. when you have a thesis and new evidence seems to prove your thesis correct, the natural thing is to believe you were right all along. you should approach that with

skepticism. maybe you are right, people are right about stocks every day, but maybe it is a coincidence. let me give a concrete example. the residential solar stocks soared in 2020 and 2021 and kept running into 2022. if you owned it, maybe you thought people were embracing renewable energy and government was subsidizing it heavily. but in 2023 the residential solar stocks got obliterated. why? do you know it had nothing to do with the popularity of renewable energy and couldn't be stopped by generous federal subsidies. in the end it turned out people can't afford the systems without borrowing money. meaning it was built not only on solar, but on financing at once people realized interest rates would remain elevated, the stocks got crushed. it is not a coincidence something like in phase was roaring in 2020 and 2021 when people could borrow money for next to nothing. so bottom line it is very helpful to understand why a

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tonight i taught you about mad-onomics 101 and now it is time to turn to you. my viewers are smart which is why my favorite part of the show was answering questions. tonight i'm ringing in jeff marks, my portfolio analysis partner in crime at the cnbc investing club. some of these colors have been

calling and saying you do a great job. keep your head so you can get through the door. for those of you who are in the club, jeff needs no introduction. for those of you who aren't members and i hope you soon will be, jeff's insight is what we think is a major part of being part of the investment club. thank you very much. first we have a question from jimmy who asks how can we best identify companies within an industry? i like to see who has the highest gross margins. it means they can make the most money and it is something people don't look at enough. >> that is a great way to do it. you could look at who is growing the fastest as well, with revenues, but another way that is important is the conference calls of the companies and their peers and their customers. see who is partnering with who. that will give you a good tell of who has the best products and who is doing it best by their customers. >> that is a good point because i find in the conference call

you get a good sense of whether the analysts hated or like it. you can often see y their questions whether they are in on where they think there is something, so great point with the conference calls. next we have a question from ian in pennsylvania who asks, you stress the importance of being diversified and doing your homework. is there a point where an individual can have too many stocks to keep up with homework while staying diversified? i used to discuss this question with my father. he liked to have 40 or 50 stocks and i would say to him, why do you have 40 or 50 stocks? to me, i work a couple of hours a day and spend a lot of time working on the market, so i like a lot of stocks. he had time on his hands. most people don't. that is why i say try to keep it to 10. don't be mutual fund to yourself. >> the benefits start to diminish at a certain point if you keep adding and adding stocks, but 5 to 10 is generally safe. >> pick the ones you like.

use your power of observation and curiosity. >> is you do more homework, that is when you can start adding more. >> i think that is perfect. next we have a question from dean, also from pennsylvania who asks i am considering an s&p 500 index fund -- both have similar ratios and historic returns. what is the primary difference between the two? do you know john fogel told me i want you to put in your 401(k), i wanted to be the total return fund of vanguard and that is what i did. why did he want me to do it? he said over the long term you will get better performance because you will e diversified and end up taking some good, young growth stocks. >> that is exactly the difference. s&p 500, that will be more of the large-cap. total stock you will have the mid-cap and smaller caps as well. i think if you look over the long run, there is not much of a difference between the two. >> right, but i end up doing it

because the father of the index fund, as you know. he said this market will beat it. anyway i am just doing it out of homage to the late john fogel, an amazing guy. now let's go to miles in new york who asks when are you cutting big? 20%, we like a little sale and up another 20%. we have been very, let's say diligent about letting our great stocks run and cutting off the ones that aren't. that's the key thing. let your great stocks run, but you can minimize your losses and be more aggressive in cutting. you will outperform. >> right and you have to remember when your original thesis is not playing out as expected, that is when you may have to make an adjustment. i know in some of those cases we often learn that our first sale is the best when trying to get out of a struggling name.

>> there is nothing wrong admitting you have a loss. what matters as we were talking about the other day is you just win more than you lose. that is what you need to do. you know what, we have to save the rest of the questions for next time. so all i can say is there is always a bull market somewhere. i promise i will find it just for you, right here on "mad money". see you next time. lion in sale. -wow. -wow. i'll give you $5 million. -whoa! -whoa! it's a loan-shark deal. you're the walking, talking billboard of how to do it right. but wait, there's more. -oh, there's more. -boom! ♪♪ narrator: first in the tank is a convenient version of a popular cuisine. ♪♪ ♪♪